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Economics Theme 3 > Key Words > Flashcards

Key Words Flashcards

1
Q

Allocative efficiency

A

When an economy produces the appropriate amount of goods and services relative to consumer’s demand

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2
Q

Average cost

A

Total cost divided by the quantity produced

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3
Q

Backwards integration

A

When a firm merges with another firm that is involved in an earlier stage of the production process

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4
Q

Barrier to entry

A

A characteristic of a market that prevents new forms from readily joining the market

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5
Q

Cartel

A

An agreement between firms on price and output with the intention of maximising their joint profits

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6
Q

Competition policy

A

A set of measures to promote competition in markets and protect consumers in order to enhance the efficiency of markets

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7
Q

Conglomerate merger

A

A merger between two firms operating in different markets

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8
Q

Constant returns to scale

A

When LRAC remains constant with an increase in output

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9
Q

Contestable market

A

A market in which the existing firm makes only normal profit, as it cannot set a higher price without attracting entry, due to the absence of barriers to entry and sunk costs

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10
Q

Corporate social responsibility (CSR)

A

Actions that a firm takes in order to demonstrate its commitment to behaving in the public interest

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11
Q

Cost-plus pricing

A

A pricing policy where firms set their price by adding a mark-up to average cost

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12
Q

Derived demand

A

Demand for a good or service not for its own sake but for what it produces

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13
Q

Diseconomies of scale

A

When an increase in the scale of production leads to higher LRAC

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14
Q

Economies of scale

A

When an increase in the scale of production leads to lower LRAC

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15
Q

Economies of scope

A

Economies arising when average costs fall as a firm increases output across a range of different products

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16
Q

External economies of scale

A

Economies of scale that arise from the expansion of the industry in which a firm is operating

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17
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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18
Q

Fixed costs

A

Costs that do not vary with the level of output

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19
Q

Forward integration

A

A process under which a firm merges with a firm that is involved in a later part of the production process

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20
Q

Game theory

A

A method of modelling the strategic interaction between firms in an oligopoly

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21
Q

Horizontal integration

A

The result of a horizontal merger

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22
Q

Horizontal merger

A

A merger between two firms at the same stage of production in the same industry

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23
Q

Industry long-run supply curve (LRS)

A

Under perfect competition, the curve that is horizontal lat the minimum point of the long-run average cost curve

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24
Q

Internal economies of scale

A

Economies of scale that arise from the expansion of a firm

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25
Q

Law of diminishing returns

A

If a firm increases its inputs of one factor of production while holding input of the other fixed, it will eventually derive diminishing marginal returns from the variable factor

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26
Q

Limit price

A

The highest price that an existing firm can set without enabling new firms to enter the market and make a profit

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27
Q

Long-run

A

The period over which the firm is able to vary the inputs of all its factors of production

28
Q

Marginal cost

A

The cost of producing an additional unit of output

29
Q

Marginal physical product of labour (MRPl)

A

The additional revenue received by a firm as it increases

output by using an additional unit of labour input

30
Q

Market structure

A

The market environment within which firms operate

31
Q

Minimum efficient scale

A

The level of output at which long-run average cost stops falling as output increases

32
Q

Minimum wage

A

A government-set minimum wage rate below which firms are not allowed to pay

33
Q

Monopolistic competition

A

A market that shares some characteristics of a monopoly and some of a perfect competition market

34
Q

Monopoly

A

A form of market structure in which there is only one seller of a good or service

35
Q

Monopsony

A

A market in which there is a single buyer of a good, service of factor of production

36
Q

Multinational corporation

A

A firm that conducts its operations in a number of countries

37
Q

‘N’-firm concentration ratio

A

A measure of the market share of the largest ‘n’ firms in an industry

38
Q

Nash equilibrium

A

A situation occurring within a game when each players chosen strategy maximises payoffs given the other player’s choice, so that no player has an incentive to alter behaviour

39
Q

Natural monopoly

A

Monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable

40
Q

Non-pecuniary benefits

A

Benefits offered to workers by firms that are non financial in nature

41
Q

Normal profit

A

Profit that covers the opportunity cost of capital and is just sufficient to keep a firm in the market

42
Q

Oligopoly

A

A market with few sellers, in which each firm must take account of the behaviour and likely behaviour of rival firms in an industry

43
Q

Oligopsony

A

A market in which there are few sellers of a good, service or factor of production

44
Q

Overt collusion

A

A situation in which firms openly work together to agree on prices or market shares

45
Q

Participation rate

A

The proportion of the population of working age who are in employment or seeking work

46
Q

Perfect competition

A

A market structure that produces allocative and productive efficiency in long-run equilibrium

47
Q

Perfect/first-degree price discrimination

A

A situation arising in a market whereby a monopoly firm is able to charge each consumer a different price

48
Q

Predatory pricing

A

An anti -competitive strategy in which a firm sets price below average variable cost in an attempt to force a rival out of a market and achieve market dominance

49
Q

Price taker

A

A firm that must accept whatever price is set in the market as a whole

50
Q

Principal-agent (agency) problem

A

A problem arising from the conflict between the objectives of the principals and those of the agents who take decisions on their behalf

51
Q

Private Finance Initiative (PFI)

A

A funding arrangement under which the private sector designs, builds, finances and operates asset and associated services for the public sector in return for an annual payment linked to its performance in delivering the service

52
Q

Product differentiation

A

A strategy adopted by firms that marks their product as being different from their competitors’

53
Q

Productive efficiency

A

Occurs when firms have chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs, thus producing at minimum LRAC

54
Q

Public-private partnership (PPP)

A

An arrangement by which a government service or private business venture is funded an operated through a partnership of government and the private sector

55
Q

Satisficing

A

Behaviour under which the managers of firms aim to produce satisfactory results for the firm

56
Q

Short-run

A

The period over which a firm is free to vary the input of one of its factors of production, but faces fixed input of the other

57
Q

Short-run supply curve

A

For a firm operating under perfect competition, the curve given by its short-run marginal cost curve above the price at which MC = SAVC
For the industry, the horizontal sum of the supply curves of the individual industries

58
Q

Static efficiency

A

Efficiency at a particular point in time

59
Q

Sunk costs

A

Short-run costs that cannot be recovered if a firm closes down

60
Q

Supernormal profits/Abnormal profits/Economic profits

A

Profits that exceed normal profits

61
Q

Tacit collusion

A

A situation occurring when firms refrain from competing on price, but without communication of formal agreement between them

62
Q

Third-degree price discrimination

A

A situation in which a firm is able to charge groups of consumers different prices for the same product

63
Q

Variable costs

A

Costs that vary with the level of output

64
Q

Vertical merger

A

A merger between two firms in the same industry, but at different stages of the production process

65
Q

X-inneficiency

A

A situation arising when a firm is not operating at minimum cost

Economics Theme 3 (2 decks)

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